• by Ross Fadner , April 12, 2004

Claria's filing for an initial public offering suggests that the company has confidence in the viability of its business model, despite pending legislation and litigation surrounding the software-based marketing industry and civil suits directed against it. Opponents of "adware," or software applications that consumers must download to their computers, say that the applications are often difficult to remove, offer unclear disclosure of advertising deployment practices, and in some cases, irrevocably alter users' Internet browser settings.

Interestingly, Claria's timing and plan to go public couldn't be better, at least according to one analyst. "This is absolutely the year for Internet advertising techs (companies)," says Denise Garcia, principal analyst for Internet media and marketing, GartnerG2: "As much as Claria is an advertising technology company, this is the perfect year for them to go public." Garcia says she expects more Internet-based companies like Google to go public this year. "Knowing the VCs (venture capitalists) that I know," she adds, "they've all been talking about Internet advertising companies."

Garcia says the outcome of legal and legislative issues could change Claria's fortunes, however. "I would like to see Claria resolve all of their pending lawsuits," she says--which would encourage further confidence among investors.

That, however, could take some time. Claria's list of outstanding civil suits include the Hertz Corporation, L.L. Bean, Six Continent Hotels Inc. and Inter-Continental Hotels Corporation, TigerDirect, True Communication, Wells Fargo & Company, WFC Holdings, and Quicken Loans. Negative rulings, Garcia says, would greatly impact Claria's future. Representatives from Claria Corp. were not available for comment at press time.

Garcia says that legislation could, ironically, help Claria. "It will be better for their [future] investors if lawsuits are settled and legislation is passed." The Claria business model "has huge potential, especially as they develop more products. I'm sure they see different applications for their software, too," she adds.

But legislation could also hurt providers like Claria. It is unclear how the proposed federal Spyblock legislation would affect a company like Claria should it pass through Congress.

Ari Schwartz, associate director for The Center for Democracy and Technology (CDT), took issue with an April 12 New York Times article after being read a passage from the piece which suggested that Spyblock "would, among other things, require companies to give consumers the option to remove the software each time an ad is shown."

Schwartz says that this is "probably" inaccurate, but if it were true, then adware companies like Claria would be required to include an opt-out on each ad served. Currently, he says, users are several clicks away from uninstalling the software--something the CDT highlights as one of the most numerous complaints against Claria.

Schwartz, who says he has worked closely with Claria regarding the concerns consumers have raised to the CDT, says he doesn't think any pending legislation will pose much of a problem for Claria. "In terms of legislation and the scene in Washington," Schwartz says, "[Claria] is pretty comfortable with the bills that are out there. They feel they address the issue of notice and consent."

Consumers, however, might prove to be the real problem. PC Pitstop, a technology Web site that sells auto-diagnostic and auto-detecting technologies, conducted a survey of its users about Claria's products after receiving numerous complaints from its user base. From September 2003 through January 2004, PC Pitstop asked its customers to qualify their Gator/GAIN installation experience (GAIN is the name of Claria's software and advertising network).

Among the survey's most important findings was that 75 percent of the 34,672 respondents didn't remember installing the software. Furthermore, 14 percent didn't read the licensing agreement at all, and 97 percent were unaware of what the application was doing to their system. PC Pitstop claims a 95 percent confidence level with a 5 percent margin of error for its survey.

Schwartz says that the CDT's consumer complaints have mirrored many of the findings in the PC Pitstop survey. He says that of the few hundred complaints the CDT has received in the last month, a quarter of them are directly related to Claria's products. He says that many consumers have no idea how Claria's software ended up on their computers. Schwartz also notes further that the CDT's consumer base is well above the average technology background. "We're more likely to have the most advanced users; many identify themselves as having Master's degrees in computer science," he says.

Schwartz adds that Claria has been very cooperative. "They are very open to hearing our concerns," he says, but notes that the CDT has received no definitive responses to concerns they addressed last fall.

Schwartz says the PC Pitstop findings are believable because many consumers are simply confused by Claria's user-consent agreement. "One thing (consumers) don't understand," he says, "they don't get GAIN ads when they are on KaZaa (an application users download in exchange for Claria's adware product)--they get them while they are surfing the Web." In other words, users are not receiving messages along with the application they download--they receive messages when they are doing something else completely. So the adware product bears no relationship to the application. "In fact," says Schwartz, "you might not even get an ad until 2 or 3 days later. This is confusing to people."

"If [Claria] can educate people or figure out a way to make their product more transparent than it is today," then, he says Claria and Claria-like business models will win over consumers.